Forecasting is as Unique as Your Business

Your business… it has a product, whether it is metal, housing, medical equipment, processed claims, financial reports, or food.  Your organization exists to provide some level of good within the world.  The struggle we often have is “what”, “how much”, and “when” which determines our business health and future opportunities.  The interesting thing is that many businesses are challenged to answer these questions.  There is an overreliance on gut feel or intuition, or the same spreadsheets that have been used for the last 25 years.  The message I have on this topic is that there is a better way and the second you think about forecasting as a competitive advantage you separate your business from the competition.

Why is forecasting a competitive advantage?

Imagine that you had foresight into what was more likely to occur and you could get measurable inventory savings year over year, or could improve sales by being more responsive to customer demand you already knew was coming, or could optimize your workforce for certain periods of the week.  The improvements made possible by forecasting create real and lasting impact that becomes an operational advantage in the continual battle for market share.

Why is forecasting hard?

This is an interesting question with a lot of directions.  The most important reason that forecasting is hard is that it is highly dependent on product mix, quantities, and sizes.  It is also less important why something happened in the past than our ability to predict what will happen in the future.  The opportunity to understand what will happen in the future is only as good as our data stewardship, which leads many demand projects into discussions of either (1) is the problem big enough to solve or (2) is our data ready to analyze.

What are the stages of forecasting solutions?

I’ve observed several stages of companies improving their forecasting approaches.  They range from very reactionary to not-good-enough to fully managed.  Here are a few categories of how to break down where you might be:

• Stage 1 – Just reacting to demand from customers and then doing something with it
• Stage 2 – Forecasting with excel and hoping it turns out ok
• Stage 3 – Trying an off-the-shelf tool that looks good in the demo
• Stage 4 – Building forecasting specific to your business

There are many companies that can see success from each stage and it often is determined by the sophistication or the size of your business.  For example, if you are a scrappy start-up, you might be at stage 1 and be ok with that.  The goal at that point is to take every deal off the street that you can.  However, as your business improves, you’ll see a difference when you start to think of forecasting as a competitive advantage to your business.  Let’s talk about the outcomes to shoot for as you engage in forecasting initiatives.

Outcome #1.  An understanding of incoming demand

The first and most obvious is an understanding of what the upcoming demand will look like.  This is valuable by itself.  In many cases executive teams spend many hours going back and forth about what the demand looks like and arguing about the data behind it.  An effective demand planning initiative provides a “source of truth” for all successive discussions that is understood and agreed to.   This requires trust in the data behind the demand planning, the process to getting there, and the assumptions made.  That’s hard work, but if that hard work is completed the opportunity for progress is available because alignment has been successfully achieved.

Outcome #2.  An ability to reflect that demand in supply and work planning

The second and clear follow-up to understanding demand is using it to optimize the supply and work planning across the organization.  This is how much inventory, where, when, and who is working it?  Don’t make the mistake however to think this is just about manufacturers.  This can also be about capacity, process planning, etc.  Does anyone remember what happened when millions of people tried to sign up for Taylor Swift concert tickets at the same time?  That was an obvious problem waiting to happen and I’m sure they thought they had it figured out, but there was an ineffectiveness in the planning activity to get there.  The ability to not just predict what will happen, but prescribe what you should do about it is the critical next step here.

Outcome #3.  An opportunity to partner with customers more closely

This leads us to the opportunity vs. threat zone.  If a company understands the necessary demand more closely it is positioned to understand its customers.  The best way to grow the business is to understand the customer’s need and closely partner with it… either to garner an increased quantity of that business or to replace it with more uniquely tuned capabilities that competitors can’t match.  It also might be an opportunity to disrupt the market with an offer that has a more unique mix of capabilities.

Outcome #4.  An opportunity to adjust tactics based on what will change demand

The knowledge of your competitor and especially what will occur in the future based on different factors also gives the business insight into how to adjust those factors to its benefit.  Imagine you know the impact of a price change with greater certainty, or understand that particular features will change the demand cycle, or have an insight into demand based on weather conditions… what would that do to your business?  This is where applying highly capable demand/forecasting capabilities comes into play.

Outcome #5.  Creating a new data-based service

The aggregate knowledge across a variety of customers can give you insight into best practices that top quartile companies possess.  The best companies leverage this information to level-up their product to improve the performance of their customer’s businesses.  For instance, a company distributes products to convenience stores.  They undeniably understand more about what makes a profitable store and what doesn’t.  They know which create more revenue and which have less.  The company now has the capability not only to supply those stores, but to improve their performance based on the best practices they have absorbed.  This can either be a way to increase stickiness with the customers or can be a new product completely.

Think of each of these opportunities as ways to improve business efficiency, create customer connection, or drive new revenue as a result of creating a new service.  If this is interesting, check out the webinar with Brandon Dey we have coming up on this topic in later August or see you at the AI Symposium in September/October.

Nathan Lasnoski